May 7, 2012
Capturing the exact volume of commercial real estate loans outstanding at German banks sparks interest for three reasons:
1. The upcoming years will see the extension of the loans granted during the 2005-2007 boom. The loan-to-value ratios at the time of issuance were in some cases much higher on average than would appear desirable on risk considerations today. So, at extension time, some of these loans will be scrutinised as to their long-term sustainability.
2. German banks grant a substantial proportion of their commercial real estate loans to clients abroad. Depending on the specific location, some values may have been adjusted in the meantime, possibly making an extension of the funding an unattractive proposition for both parties.
3. The real estate market is of major significance for the economy in Germany and also in other countries. Therefore, its long-term funding is also crucial for stable GDP growth.
Germany’s Bundesbank says the volume of commercial real estate loans outstanding at German banks totalled EUR 313 bn at end-2011 (on the basis of banking statistics). However, the actual volume is likely to have totalled at least EUR 463 bn at end-2011. It should be noted that the Bundesbank does not factor in commercial real estate loans granted by German banks to clients abroad. The volume outstanding of such loans totalled approximately EUR 150 bn at the end of 2011. However, this figure comes from the Berlin-based Association of German Pfandbrief Banks (Verband der Pfandbriefbanken, or vdp) and as such it only includes the loans issued by its members. The vdp members claim a 63% share of the domestic market for commercial property loans (2010). It is to be expected that the foreign share at least matches this total, if not surpassing it. It is interesting to observe the change in the volumes posted by the vdp members over time: commercial property loans to foreign companies jumped from 2005 before starting to plateau in 2008 or decline again slightly from the high level already reached. However, the strong increase since 2005 is mainly attributable to the growth in the vdp’s membership (2004: 20 member banks; 2010: 38).
The conclusion may be drawn that the shortage of data in this area results in the volume of commercial real estate loans issued by German banks being underestimated. Since the real estate market is of major significance for the economy in Germany and also in other countries and since commercial property is usually highly leveraged, more detailed statistical records would be desirable.
Sophie Ahlswede (+49) 69 910-31832